Ken Harney; Missing The Point

by benborden

I am a regular reader of Ken Harney’s articles in the Washington Post. Sundays article “Buyers often clueless on their loans” just caught my eye and I continued to read through. At the end I just thought how off base the article was.
Come on Ken, give us credit. First off don’t you think ADJUSTABLE RATE is about a clear disclosure as you can get. Remember these people sit on front of a closing attorney, in most cases. Which leads me to make another point.

Today just about anyone can close a loan. All you need is a notary license and your set. In my opinion this is where the problems lie, not necessarily the disclosures but the person closing the loan. Also, so many Realtors, lenders and builders own through interest, title companies you have to ask, If your builder builds your home, sells you a loan and closes your loan whose interest is being protected? Or a Lender or broker referring you to their “owned” title company. I am not speaking about “preferred” title co or Attorney but “Owned.” When a realty company advertises Real Estate - Mortgage - Title - Insurance and these are “owned” entities of that realty company directly or through LLC’s, who’s being protected? I will stand up and say this is the problem not the disclosures themselves but who has been trusted to explain the documents to the borrower. A Notary Public can not explain the terms of the loan properly if at all legally.

A Realty Company and Builder keeping the whole transaction within the organization is not in the best interest of the client. Just look at Beazer Home Builders. Back in March it was published that Beazer was being investigated by the U.S. Attorney’s Office. It’s also been reported that other federal agencies, including the Department of Housing and Urban Development and the Internal Revenue Service, are looking at the company.

The bottom line is use an Attorney to close your transaction. All the major home builders, Beazer, Centex, KB Homes and Ryan Homes are guilty of “steering” home buyers to their mortgage entities. In my opinion any builder that offers $20,000 - $30,000 in false incentives to use their mortgage and title company is guilty of steering.

Secondly, any pre-payment a loan has is disclosed on the TNL, Truth In Lending. Its clearly checked at the bottom of the form, “This loan may have a pre-payment penalty.” Once a borrower goes to closing attorney the lender requires a “Pre-Pay Addendum.” This form is totally separated and a complete different page that the borrower must sign at the Attorneys office, acknowledging a penalty if the property is sold or refinanced within a defined period.

Thirdly, APR is a extreme poor way to comparison shop for a loan. The APR was initially mandated by the government to make it “easier” for loan recipients to shop for the best loan program. This strategy was designed to differentiate loan with low rates and higher fees vs those with higher rates but lower fees. APR is flawed in the sense that it does not take into account inflation and it also assumes the borrower will keep the loan for the whole term of the loan. Bear in mind the average loan life is less than 5 years so to calculate APR on a 30 year amortization is out in the stratosphere. There are other areas that the APR is flawed as well but the most important I have outlined in addition, APR is highly manipulated. So it’s totally worthless as a comparison.

Lastly, you get what you pay for. It’s as simple as that. When borrowers go out on the internet to get the “cheapest rate” they get what they pay for. When a borrower takes price over advice no disclosure is going to help. Right now there are approximately 26 individual disclosures in a Virginia mortgage application. Would 27 really help that borrower?

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